The DAX index continues to post gains this week. In the Friday session, DAX is trading at 12,736.25, up 0.40% on the day. On the release front, Eurozone CPI Flash Estimate was unchanged at 1.5%, just shy of the forecast of 1.6%. German numbers were a mix. Retail Sales declined 0.4%, well off the forecast of +0.5%. There was better news from the labor market, as unemployment rolls dropped by 23 thousand, much stronger than the estimate of a decline of 5 thousand.
Despite the uncertainty surrounding the German election, German stock markets continue to point upwards. The DAX is poised for another winning week, and has climbed an impressive 5.3 percent in September. Although German retail sales have recorded two straight declines, the markets remain confident in the strength of the German economy, which has showed robust growth in 2017 and is a key factor in stronger economic conditions in the eurozone, in particular stronger growth and lower unemployment. As for the election, President Angela Merkel isn’t wasting any time, and has appointed her former finance minister, Wolfgang Schaeuble as president of parliament. This move clears the path for the FDP to join a Merkel government, as the party has insisted on the finance portfolio. The FDP is fiscally hawkish and staunchly against Germany continuing to finance weaker eurozone members, such as Greece. If the FDP does take part in the government, Merkel may have to shift away from her pan-European vision of a more closely integrated eurozone.
The US economy continues to perform hum, as Final GDP for the second quarter posted an impressive gain of 3.1%. This figure was revised upwards from the second estimate of 3.0% in August. However, September and third quarter economic numbers could soften, due to the damage caused by hurricanes Harvey and Irma, which caused a slowdown in economic activity. The recent hurricanes have impacted on the labor market, pushing unemployment numbers higher. Still, the labor market remains strong, as underscored by unemployment rolls which have remained below the 300,000 level.
President Trump has all but given up on his health care proposal, as the plan lacks enough support from Republican lawmakers. Trump has now set his sights on tax reform, another key campaign promise. On Wednesday, Trump proposed a major overhaul of the US tax code, which includes reducing the corporate tax rate from 35 percent to 20 percent, as well as a 25 percent tax rate for small businesses, such as partnerships. Like other Trump proposals, the tax plan was sketchy on details, including how the tax plan would be paid for. With Democrats and some Republicans wary of Trump’s tax agenda, it’s likely his that tax reform proposal will face a stiff battle in Congress.
